As we turn the page to the final quarter of 2020 and the end of a challenging year is in sight, little rest remains for the weary. We face a visceral election with the prospect of renewed market volatility and potential confusion over the outcome. The coronavirus pandemic remains a significant challenge to the global economy and a new second wave of infections begins to emerge here at home.
No matter, positive news of vaccine developments during the quarter, along with the ongoing extreme monetary policy, contributed to the buoyancy of markets. Despite the slowing recovery and rising risks, equity and credit markets have held up surprisingly well, pinning hopes on future vaccine availability which allows accelerated economic reopening, as well as forthcoming additional government stimulus. Capital markets experienced a rough September, reversing many of the previous trends that we have seen since the rebounding of risk assets in the spring. Broad commodities outperformed equities and fixed income, led by industrial and agricultural commodity prices that perked up as the economy improved.
As we survey the landscape, there’s no question economic data has been snapping back. Jobs are recovering at a modest pace as more and more people get back to work and their new normal. So far, investors of capital have not been too worked up over recent market gyrations. It’s been made clear that enough Federal Reserve stimulus can rescue markets and stabilize asset prices. Unfortunately, the at-risk, lower income households that need help the most generally haven’t benefited from the support of financial asset prices, shedding light on inequality and an uneven shaped recovery. Sustainable growth for the broader economy will likely require more direct fiscal support to households, small businesses, and local governments in the near term, but for now, Congress seems to be in a prolonged political stalemate ahead of the election.
Finally, we look forward to the conclusion of the presidential election which was already a hot-button issue coming into this year, and the pandemic only added fuel to the fire. Unfortunately, neither party seems interested in anything akin to fiscal prudence, but for the time being it is believed financing trillion-dollar deficits may become somewhat manageable given the interest are rates near historic lows, and as Fed Chairman Powell advised, ‘now is not the time to give priority to those concerns’.
Going forward, we expect select equity sectors ultimately to rise over the next several quarters, knowing risks and volatility will become elevated through the November election and concerns of a second Covid-19 wave. Time may heal these wounds, yet we truly are not out of the woods of the 2020 recession until we have a working vaccine, effective treatments, or herd immunity where a large part of the population has been infected.
No matter what tomorrow brings, we will continue to follow our process of keeping close tabs on clients’ portfolios and financial plans. We believe the current market conditions warrant a risk-aware, dynamic approach to investment management to accompany comprehensive financial planning. To that end, if any new changes have occurred in your present financial situation or long-term goals, please contact us so we can make sure that the asset allocation in place is still appropriate.
For now, a change to the fall season is in the air and we welcome it. Please stay healthy and feel free to contact us anytime. Our team is always available to you and we look forward to speaking with you very soon.
Eric W. Kendrick, CFP/President